To increase revenue, firms look to increase price or quantity, as price multiplied by quantity equals total revenue. Purely competitive firms can sell as much as they want at the market price. Adding additional units of the product does not result in a change in the market price. Therefore, since purely competitive firms do not influence price, they increase total revenue by increasing quantity.

2. What are two ways for a competitive firm to determine the optimal level of production, that is, the level of production that will maximize profit or minimize losses?

Hint : If the additional cost of producing another unit is greater than the additional revenue generated by selling that additional unit, the firm reduces its total profit.

A. Comparing total revenue to total cost or marginal revenue to marginal costs
B. Comparing average revenue to average costs or marginal revenue to marginal costs
C. Comparing average variable costs to price or marginal revenue to price
D. Comparing total revenue to average variable costs or price to average variable costs

A. Comparing total revenue to total cost or marginal revenue to marginal costs

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3. Suppose that a firm determines that its marginal revenue is greater than its marginal cost, it would be better to

Hint : Remember, marginal revenue is the change in revenue received from producing an additional unit, while marginal cost is the additional cost of producing another unit.

A. increase production
B. decrease production
C. keep production the same
D. increase price

A. increase production

Inelastic goods are necessities that consumers continue to purchase even when the price increases. This increases the revenue, as more is paid for each good. The percentage change in price increases faster than the change in quantity, which may remain constant. When more is paid for a good or a service, revenue increases

4. It is profitable for a firm to continue employing additional resources as long as

Hint : If a firm realizes that its marginal revenue product keeps increasing they can continue to provide additional resources to make more. If a firm realizes that its marginal revenue product is decreasing they will be less likely to provide additional resources.

As with the optimal level of production for a good, the optimal usage of a resource is determined by ensuring that the revenue from that resource is at least equal to the marginal cost of that resource.